- Amazon is due to report its Q1 2016 earnings on April 28.
- Analyst consensus expects the company to report 23% YoY topline growth and 58 cents in earnings per share.
- Amazon will find it hard to topple estimates in the face of negative forex impact on AWS margins and slowdown in same-store sales.
Amazon (NASDAQ:AMZN) is scheduled to report its fourth-quarter earnings on April 28, after-market close. Amazon stock has been on a bull run for well over a year, ever since it broke out the AWS segment results in Q1 2015. The stock is up close to 60% in the last one year. The Nasdaq Composite (INDEX:COMPX), by contrast, declined by 0.6% in the comparable period.
One key factor responsible for Amazon's growth has been the steady rise in its profit margins over the last year. Aided by strong margin expansion at its AWS segment, Amazon has seen its bottom line rise, which is a clear reversal from its history of losses. Can AWS continue to lift Amazon's marginal bottom line? Can Amazon surprise the street once again in its upcoming earnings call? These are questions which assume significance ahead of Amazon Q1 2016 earnings release.
Amazon Q1 2016 Guidance
Amazon.com's management had, in its Q4 2015 earnings release, issued the following Q1 2016 guidance. Quoting from the release:
- Net sales are expected to be between $26.5 billion and $29.0 billion, or to grow between 17% and 28% compared with first quarter 2015.
- Operating income is expected to be between $100 million and $700 million, compared with $255 million in first quarter 2015.
- This guidance includes approximately $600 million for stock-based compensation and other operating expense (income), net. It assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.
The midpoint of management guidance, $27.75 billion, implies a 22% YoY growth, which is higher than Amazon's topline growth rate of 20% over the last 4 quarters. The comparable number in Q1 2015 came in at 15%. The operating income guidance, at its midpoint of $400 million, implies a 56% YoY growth.
Amazon Q1 2016 Analyst Estimates
The current analyst consensus pegs Amazon Q1 earnings at 58 cents, on a topline figure of $27.97 billion. This implies a topline growth of 23% YoY. The 58 cents in EPS (Earnings Per Share) would be a significant improvement in comparison to a 12 cent loss in Q1 2015. The whisper is that Amazon will report earnings of 62 cents/share.
Amazon Earnings History
Amazon has beaten analyst consensus on revenue and earnings in 3 out of the last 4 quarters, a fact which is reflected in the strong performance of Amazon stock over the last year or so.
|Quarter||Revenue estimate||Actual revenue||Revenue beat||EPS estimate||Actual EPS||Earnings surprise|
The earnings beats, in particular, have been aided by growing margins at AWS (Amazon web services), which has been contributing the larger chunk of Amazon's bottom line, ever since the company started breaking out the segment numbers in Q1 2015.
AWS Margin Contraction Could Be A Drag
As pointed out in a recent post by fellow contributor Alex Cho, AWS margins could see contraction in the coming quarterly report, given the impact of Forex on the segment. The author also highlights that while negative Forex impact on the AWS topline numbers will be offset by the positive forex impact on e-commerce topline, the impact on margins could be negative, given the higher margins of the AWS segment. Operating profit margins at the AWS segment have expanded from 17% in Q1 2015 to 29% in Q1 2016, a healthy 12 percentage points improvement. Hence, a hit to the AWS margins could mean the difference between an earnings beat and an earnings miss.
|Q1 2015||Q2 2015||Q3 2015||Q4 2015|
|AWS Operating Margins||17%||21%||25%||29%|
ChannelAdvisor data for Q1
ChannelAdvisor recently released its same-store sales (SSS) report for March 2016, which put Amazon's same store sales growth at 14.9% in March 2015. It is worth mentioning here that ChannelAdvisor tracks only third party sales on Amazon, which stood at 47% of overall units in Q4 2015. Also, ChannelAdvisor has very few data points relating to Amazon's media sales, which is a huge category in the overall e-commerce mix. While it is wise to take the data with a pinch of salt, what is worth highlighting is the fact that the three SSS YoY growth data points for Q1 2016 (January, February and March) were all lower than Q4 2015. On the other hand, Amazon's guidance midpoint implies a 22% YoY topline growth and anaysts expect a 23% YoY growth, which are both higher than the 21.9% growth in Q4 2015. Hence, It could be really hard for Amazon to beat topline estimates here.
Amazon is set to report its Q1 2016 numbers on April 28. Analysts expect topline growth of 23% YoY and 58 cents in earnings. While Amazon stock has been on a run, following a series of earnings surprises over the last year, Investors would do well to avoid Amazon stock ahead of the earnings release, given the risk to AWS margins and also a slowdown in latest same store sales data.